Inventory control is one of the most important parts of managing a company, regardless of its size or the sector in which it operates. Efficient inventory control can be the difference between a company's success and failure. Therefore, it is important to know the different inventory control methods that exist. In this chapter, we will cover four of them: the minimum inventory method, the maximum inventory method, the reorder point method, and the economic lot method.
1. Minimum Stock Method
The minimum stock method, also known as fixed replenishment system, is one of the simplest and most common. It consists of establishing a minimum stock level that, when reached, triggers the replenishment process. The main objective of this method is to avoid product shortages, which could lead to lost sales and customer dissatisfaction.
However, the minimum inventory method has some disadvantages. For one, it can lead to excess inventory if demand is lower than expected. On the other hand, if demand is higher than expected, it can lead to stockouts. Furthermore, this method requires constant control of stock levels, which can be laborious and expensive.
2. Maximum Stock Method
The maximum inventory method, also known as the periodic replenishment system, is the opposite of the minimum inventory method. In this case, the objective is to establish a maximum stock level that, when reached, triggers the replenishment process. The main benefit of this method is that it allows better control of the capital invested in stock, avoiding excess stock and minimizing storage costs.
However, just like the minimum inventory method, the maximum inventory method also has its disadvantages. If demand is higher than expected, it can lead to stockouts. Furthermore, this method also requires constant control of stock levels, which can be laborious and expensive.
3. Order Point Method
The reorder point method, also known as the stock level replenishment system, is a little more complex than the previous two. It consists of establishing an order point, which is the stock level that, when reached, triggers the replenishment process. The reorder point is calculated based on average demand and replenishment time.
This method has the advantage of being more precise and efficient than the previous two, as it takes into account both demand and replacement time. However, it also has its disadvantages. On the one hand, it requires constant control of stock levels. On the other hand, if demand or replenishment time varies greatly, it can lead to stockouts or excesses.
4. Economic Lot Method
The economic batch method, also known as the fixed quantity replenishment system, is the most complex of the four. It consists of establishing a replenishment lot size that minimizes total inventory costs, which include ordering costs, storage costs and out-of-stock costs.
This method has the advantage of being the most cost-efficient. However, it is also the most difficult to implement as it requires detailed knowledge of costs and accurate demand forecasting. Furthermore, like the other methods, it also requires constant control of stock levels.
In conclusion, the choice of inventory control method depends on several factors, including the type of product, demand, replenishment time and costs. Therefore, it is important to carefully analyze each method and choose the one that best suits the company's needs and capabilities.
